Commonwealth of Australia Explanatory Memoranda Commonwealth of Australia Explanatory Memoranda[Index] [Search] [Download] [Bill] [Help]
2016-2017
THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA
HOUSE OF REPRESENTATIVES
TREASURY LAWS AMENDMENT (ENTERPRISE TAX PLAN NO. 2) BILL 2017
EXPLANATORY MEMORANDUM
(Circulated by authority of the
Treasurer, the Hon Scott Morrison MP)
Table of contents
Glossary ................................................................................................. 1
General outline and financial impact....................................................... 3
Chapter 1 Reducing the corporate tax rate .................................... 5
Index......................................................................................................25
Glossary
The following abbreviations and acronyms are used throughout this
explanatory memorandum.
Abbreviation Definition
Combating Multinational Tax Treasury Laws Amendment (Combating
Avoidance Act Multinational Tax Avoidance) Act 2017
Enterprise Tax Plan Act Treasury Laws Amendment (Enterprise Tax
Plan) Act 2017
Enterprise Tax Plan Bill Treasury Laws Amendment (Enterprise Tax
Plan) Bill 2016
ITAA 1936 Income Tax Assessment Act 1936
ITAA 1997 Income Tax Assessment Act 1997
OECD Organisation for Economic Co-operation and
Development
PDF Pooled Development Fund
Rates Act Income Tax Rates Act 1986
RSA Retirement Savings Account
1
General outline and financial impact
Reducing the corporate tax rate
Schedule 1 to this Bill amends the Income Tax Rates Act 1986 (Rates Act)
to progressively extend the lower 27.5 per cent corporate tax rate to all
corporate tax entities by the 2023-24 income year. The corporate tax rate
will then be cut, for all corporate tax entities, to:
• for the 2024-25 income year -- 27 per cent;
• for the 2025-26 income year -- 26 per cent; and
• for the 2026-27 income year and later income years --
25 per cent.
Schedules 2 to 4 make consequential amendments to the income tax law
to reflect the extension of the reduction in the corporate tax rate to all
corporate tax entities.
Date of effect: The progressive extension of the lower 27.5 per cent
corporate tax rate to corporate tax entities with aggregated turnover of
$50 million or more will commence from the 2019-20 income year.
Proposal announced: The Government's enterprise tax plan was
announced on 3 May 2016 as part of the 2016-17 Budget.
Financial impact: These amendments have the following revenue
implications:
2016-17 2017-18 2018-19 2019-20 2020-21
0 0 0 -$100m -$500m
Human rights implications: These Schedules do not raise any human
rights issues. See Statement of Compatibility with Human Rights --
Chapter 1, paragraphs 1.85 to 1.89.
Compliance cost impact: Nil.
Treasury Laws Amendment (Enterprise Tax Plan No. 2) Bill 2017
Summary of regulation impact statement
Regulation impact on business
Impact: As this measure is changing rates that are currently part of the
tax system, it is not expected to generate any regulatory costs. The
Regulation Impact Statement for the Government's enterprise tax plan is
in the Explanatory Memorandum to Treasury Laws Amendment
(Enterprise Tax Plan) Bill 2016 (the Enterprise Tax Plan Bill).
4
Chapter 1
Reducing the corporate tax rate
Outline of chapter
1.1 Schedule 1 to this Bill amends the Rates Act to progressively
extend the lower 27.5 per cent corporate tax rate to all corporate tax
entities by the 2023-24 income year. The corporate tax rate will then be
cut, for all corporate tax entities, to:
• for the 2024-25 income year -- 27 per cent;
• for the 2025-26 income year -- 26 per cent; and
• for the 2026-27 income year and later income years --
25 per cent.
1.2 Schedules 2 to 4 make consequential amendments to the income
tax law to reflect the extension of the reduction in the corporate tax rate to
all corporate tax entities.
Context of amendments
1.3 In the 2016-17 Budget the Government announced its intention
to reduce the corporate tax rate to 25 per cent for all corporate tax entities
by the 2026-27 income year.
1.4 Legislation to implement the Government's enterprise tax plan
was introduced in the Enterprise Tax Plan Bill. The Senate amended the
Bill to remove the planned corporate tax rate cuts for corporate tax entities
with a turnover of $50 million or more. Therefore, under the current law,
these corporate tax entities will continue to face a corporate tax rate of
30 per cent.
1.5 The Government supported the Senate amendments in order to
deliver tax relief and provide certainty for around 3.2 million small and
medium Australian businesses, employing 6.7 million workers.
1.6 The Government remains committed to delivering a corporate
tax rate cut for corporate tax entities under its enterprise tax plan.
Therefore, this Bill amends the Rates Act to implement the remainder of
the Government's enterprise tax plan.
5
Treasury Laws Amendment (Enterprise Tax Plan No. 2) Bill 2017
1.7 Australia's strong economic performance over 25 years has
come in the face of large global economic shocks and ongoing instability,
as well as a range of domestic challenges. At the same time, extraordinary
technological change and increasing global connectivity have created new
opportunities and transformed how we live, work and do business.
1.8 The tax system needs to adapt to these challenges so that it
continues to support Australia's growth into the future. In addition, the tax
system needs to be fair and sustainable. A competitive company tax rate is
crucial to Australia's economic success and will help underpin the
longevity of the system.
1.9 An uncompetitive business environment can be the difference
between firms investing in Australia or choosing to invest elsewhere.
1.10 At 30 per cent, Australia's headline corporate tax rate is now
one of the highest in the world and significantly above the average for
Organisation for Economic Co-operation and Development (OECD)
countries and those in the Asian region. In 2017, of 35 OECD economies,
only four have higher corporate tax rates than Australia. This is expected
to deteriorate further as other nations announce plans to reduce their tax
rates in the future.
1.11 The reduction in the corporate tax rate for all companies, to
25 per cent by the 2026-27 income year, will encourage investment and
higher paid jobs. It will also make Australian companies more
internationally competitive in a tough global market place.
1.12 The Government's enterprise tax plan will result in higher living
standards for Australians and an expected permanent increase in the size
of the economy of just over one per cent in the long term.
Operation of the current law
1.13 For the 2017-18 income year, the corporate tax rate for an
ordinary corporate tax entity is:
• if the entity is a base rate entity -- 27.5 per cent; or
• otherwise -- 30 per cent.
1.14 An entity is a base rate entity if it carries on a business and has
an aggregated turnover of less than
• for the 2017-18 income year -- $25 million; and
• for the 2018-19 income year and later income years --
$50 million.
6
Reducing the corporate tax rate
1.15 Special rules apply to:
• corporate tax entities that are retirement savings account
(RSA) providers;
• corporate tax entities that become pooled development funds
(PDFs) during an income year;
• non-profit companies;
• recognised medium credit unions;
• life insurance companies; and
• public trading trusts.
Corporate tax entities that are RSA providers
1.16 The taxable income of corporate tax entities (other than life
insurance companies) that are RSA providers is divided into two
components:
• the RSA component -- which is taxed at a 15 per cent rate;
and
• the standard component -- which is taxed at a rate of:
- if the entity is a base rate entity -- 27.5 per cent; or
- otherwise -- 30 per cent.
Corporate tax entities that become PDFs during an income year
1.17 The taxable income of corporate tax entities that become PDFs
during an income year is divided into three components:
• the small and medium enterprises income component --
which is taxed at a 15 per cent rate;
• the unregulated investment component -- which is taxed at a
25 per cent rate; and
• the amount that exceeds the PDF component -- which is
taxed at a rate of:
- if the entity is a base rate entity -- 27.5 per cent; or
- otherwise -- 30 per cent.
7
Treasury Laws Amendment (Enterprise Tax Plan No. 2) Bill 2017
Non-profit companies
1.18 Non-profit companies pay no tax on the first $416 of their
taxable income. Tax is then shaded in at a rate of 55 per cent of the excess
over $416 until the tax on taxable income equals the corporate tax rate.
Where the taxable income exceeds the shade-in limit, the full taxable
income is effectively taxed at the corporate tax rate.
1.19 Currently, the shade-in limit is:
• for non-profit companies that are base rate entities -- $832
(reflecting the current 27.5 per cent corporate tax rate that
applies to corporate tax entities that are base rate entities); or
• for all other non-profit companies -- $915 (reflecting the
30 per cent corporate tax rate).
1.20 Therefore, the rates of tax payable by a non-profit company that
is a base rate entity is:
• first $416 of taxable income -- nil;
• taxable income between $416 and $832 -- 55 per cent; and
• taxable income above $832 -- 27.5 per cent.
Recognised medium credit unions
1.21 Credit unions fall into three categories for income tax purposes:
• recognised small credit unions;
• recognised medium credit unions; and
• recognised large credit unions.
1.22 A credit union is a recognised small credit union if, broadly, its
notional taxable income is less than $50,000. Recognised small credit
unions are exempt from tax on interest derived from loans to members.
Other taxable income derived by a recognised small credit union is taxed
at the relevant corporate tax rate.
1.23 A credit union is a recognised medium credit union if, broadly,
its notional taxable income is between $50,000 and $150,000.
A recognised medium credit union is subject to an effective tax rate based
on a sliding scale, according to its level of taxable income.
8
Reducing the corporate tax rate
1.24 Currently, the tax payable by a recognised medium credit union
(before any offsets or credits) is limited to:
• for recognised medium credit unions that are base rate
entities -- 41.25 per cent of the amount by which the credit
union's taxable income exceeds $49,999 (reflecting the
27.5 per cent corporate tax rate that applies to corporate tax
entities that are base rate entities); or
• for all other recognised medium credit unions -- 45 per cent
of the amount by which the credit union's taxable income
exceeds $49,999 (reflecting the 30 per cent corporate tax
rate).
1.25 A credit union is a recognised large credit union if, broadly, its
notional taxable income is $150,000 or more. The taxable income derived
by a recognised large credit union is taxed at the relevant corporate tax
rate.
Life insurance companies
1.26 The taxable income of life insurance companies is divided into
two classes:
• the ordinary class -- which is taxed at a 30 per cent rate; and
• the complying superannuation class -- which is taxed at a
15 per cent rate.
1.27 A substantial part of the ordinary class of taxable income of a
life insurance company represents investment income relating to ordinary
life insurance policyholders. Therefore, to ensure competitive neutrality,
the lower corporate tax rate that applies to corporate tax entities that are
base rate entities does not apply to the ordinary class of taxable income of
life insurance companies.
Public trading trusts
1.28 Public trading trusts are taxed as corporate tax entities.
Therefore, a public trading trust is taxed at a rate of:
• if the trust is a base rate entity -- 27.5 per cent; or
• otherwise -- 30 per cent.
9
Treasury Laws Amendment (Enterprise Tax Plan No. 2) Bill 2017
Summary of new law
1.29 Schedule 1 to this Bill amends the Rates Act to progressively
reduce the corporate tax rate to 27.5 per cent for all corporate tax entities
by the 2023-24 income year.
1.30 Currently, the corporate tax rate for a corporate tax entity that is
a base rate entity is 27.5 per cent. A corporate tax entity is a base rate
entity if it carries on a business and has an aggregated turnover of less
than:
• for the 2017-18 income year -- $25 million; and
• for the 2018-19 income year and later income years --
$50 million.
1.31 The aggregated turnover threshold which applies to determine
whether a corporate tax entity is a base rate entity that qualifies for the
27.5 per cent corporate tax rate will be raised annually to:
• for the 2019-20 income year -- $100 million;
• for the 2020-21 income year -- $250 million;
• for the 2021-22 income year -- $500 million; and
• for the 2022-23 income year -- $1 billion.
1.32 In the 2023-24 income year, the aggregated turnover threshold
test to qualify for the lower corporate tax rate will be removed. In that
income year, the corporate tax rate will be 27.5 per cent for all corporate
tax entities.
1.33 The corporate tax rate will then be further reduced, for all
corporate tax entities, to:
• for the 2024-25 income year -- 27 per cent;
• for the 2025-26 income year -- 26 per cent; and
• for the 2026-27 income year and for later income years --
25 per cent.
1.34 Schedules 2 to 4 make consequential amendments to the income
tax law to reflect the extension of the reduction in the corporate tax rate to
all corporate tax entities.
10
Reducing the corporate tax rate
Comparison of key features of new law and current law
New law Current law
The 27.5 per cent corporate tax rate From the 2017-18 income year, the
will progressively be extended to all corporate tax rate for a corporate tax
corporate tax entities by the entity that is a base rate entity is
2023-24 income year. 27.5 per cent.
To achieve this, the aggregated A corporate tax entity is a base rate
turnover threshold which applies to entity if it carries on a business and
determine whether a corporate tax has an aggregated turnover of less
entity is a base rate entity that than:
qualifies for the 27.5 per cent • for the 2017-18 income year --
corporate tax rate will be raised $25 million; and
annually to:
• for the 2018-19 income year and
• for the 2019-20 income year -- later income years -- $50 million.
$100 million;
The corporate tax rate for base rate
• for the 2020-21 income year -- entities is later reduced to:
$250 million;
• for the 2024-25 income year --
• for the 2021-22 income year -- 27 per cent;
$500 million; and
• for the 2025-26 income year --
• for the 2022-23 income year -- 26 per cent; and
$1 billion.
• for the 2026-27 income year and
The corporate tax rate for corporate for later income years --
tax entities that are not base rate 25 per cent.
entities will remain at 30 per cent.
The corporate tax rate for corporate
In the 2023-24 income year, the base tax entities that are not base rate
rate entity threshold test will be entities is 30 per cent.
removed. Consequently, the corporate
tax rate will be 27.5 per cent for all
corporate tax entities.
The corporate tax rate will then be
further reduced, for all corporate tax
entities, to:
• for the 2024-25 income year --
27 per cent;
• for the 2025-26 income year --
26 per cent; and
• for the 2026-27 income year and
for later income years --
25 per cent.
11
Treasury Laws Amendment (Enterprise Tax Plan No. 2) Bill 2017
Detailed explanation of new law
1.35 Schedule 1 to this Bill amends the Rates Act to progressively
extend the lower 27.5 per cent corporate tax rate to all corporate tax
entities by the 2023-24 income year. The corporate tax rate will then be
cut, for all corporate tax entities, to:
• for the 2024-25 income year -- 27 per cent;
• for the 2025-26 income year -- 26 per cent; and
• for the 2026-27 income year and later income years --
25 per cent.
1.36 Schedules 2 to 4 make consequential amendments to the income
tax law to reflect the extension of the reduction in the corporate tax rate to
all corporate tax entities.
Extending the 27.5 per cent corporate tax rate to all corporate tax entities
by the 2023-24 income year
1.37 From the 2017-18 income year, the corporate tax rate for a
corporate tax entity that is a base rate entity is a 27.5 per cent. The
corporate tax rate for corporate tax entities that are not base rate entities is
30 per cent.
1.38 A corporate tax entity is a base rate entity if it carries on a
business and has an aggregated turnover of less than:
• for the 2017-18 income year -- $25 million; and
• for the 2018-19 income year and later income years --
$50 million.
1.39 Parts 1 to 5 of Schedule 1 to this Bill amend the Rates Act to
progressively extend the lower 27.5 per cent corporate tax rate to all
corporate tax entities by the 2023-24 income year by:
• increasing the aggregated turnover threshold to qualify as a
base rate entity annually from the 2019-20 income year to the
2022-23 income years; and
• removing the base rate entity threshold in the
2023-24 income year (so that the 27.5 per cent corporate tax
rate will apply to all corporate tax entities).
12
Reducing the corporate tax rate
Increasing the aggregated turnover threshold to qualify as a base rate
entity
1.40 For income years from the 2019-20 income year until the
2022-23 income year, the aggregated turnover threshold which applies to
determine whether a corporate tax entity is a base rate entity that qualifies
for the 27.5 per cent corporate tax rate will be raised annually, as outlined
in Table 1.1.
Table 1.1: Annual aggregated turnover to qualify as a base rate entity
from the 2019-20 income year until the 2022-23 income year
Income year Annual aggregated turnover
threshold
2019-20 $100 million
2020-21 $250 million
2021-22 $500 million
2022-23 $1 billion
[Schedule 1, items 1 to 4, paragraph 23AA(b) of the Rates Act]
27.5 per cent corporate tax rate applies to all corporate tax entities
1.41 In the 2023-24 income year, the corporate tax rate will be
27.5 per cent for all corporate tax entities. The 27.5 per cent rate will
apply to:
• the taxable income of ordinary corporate tax entities;
• the standard component of taxable income of companies
(other than life insurance companies) that are RSA providers;
• the amount that exceeds the PDF component of taxable
income of companies that become PDFs during an income
year;
• the ordinary class of taxable income of life insurance
companies; and
• the taxable income of public trading trusts.
[Schedule 1, items 7 to 9, 13 and 14, subsection 23(2), paragraphs 23(3)(b), 23(4)(c)
and 23A(a) and section 25 of the Rates Act]
1.42 For non-profit companies, the shade-in limit will be $832 for all
companies for the 2023-24 income year. [Schedule 1, item 10,
paragraph 23(6)(b) of the Rates Act]
13
Treasury Laws Amendment (Enterprise Tax Plan No. 2) Bill 2017
1.43 Therefore, for the 2023-24 income year, the rates of tax payable
by a non-profit company will be:
• first $416 of taxable income -- nil;
• taxable income between $416 and $832 -- 55 per cent; and
• taxable income above $832 -- 27.5 per cent.
1.44 For all recognised medium credit unions, the rate of tax on
taxable income exceeding $49,999 will be 41.25 per cent for the
2023-24 income year. [Schedule 1, item 11, subsection 23(7) of the Rates Act]
1.45 As a consequence of all corporate tax entities being taxed at the
same rate, the definition of base rate entity will be removed. [Schedule 1,
items 5 and 12]
1.46 In some cases, the trustee of a trust is liable to tax on an amount
to which a non-resident beneficiary is entitled (subsection 98(3) of the
Income Tax Assessment Act 1936 (ITAA 1936)). Under the new tax
system for managed investment trusts, the trustee of an attribution
managed investment trust is liable to tax in similar circumstances
(section 276-105 of the Income Tax Assessment Act 1997 (ITAA 1997)).
In both cases, if the non-resident beneficiary is a corporate tax entity, tax
is imposed on the trustee at the corporate tax rate (paragraphs 28(a) and
28A(a) of the Rates Act). Paragraphs 28(a) and 28A(a) are being amended
to reflect the fact that, for the 2023-24 income year, all corporate tax
entities will be taxed at the same rate. [Schedule 1, items 15 and 16,
paragraphs 28(a) and 28A(a) of the Rates Act]
1.47 Under the new tax system for managed investment trusts, the
trustee of a managed investment trust is liable to pay tax on non-arm's
length income (section 275-605 of the ITAA 1997). The rate of tax that is
payable is the headline corporate tax rate of 30 per cent (subsection 12(10)
of the Rates Act). As the headline corporate tax rate is being reduced to
27.5 per cent, the rate of tax that the trustee of a managed investment trust
is liable to pay on non-arm's length income will also be reduced to
27.5 per cent in the 2023-24 income year. [Schedule 1, item 6, subsection 12(10)
of the Rates Act]
Reducing the corporate tax rate to 27 per cent for the 2024-25 income
year
1.48 The amendments in Part 6 of Schedule 1 to this Bill amend the
Rates Act to reduce the corporate tax rate for corporate tax entities to
27 per cent for the 2024-25 income year. The 27 per cent rate will apply
to:
14
Reducing the corporate tax rate
• the taxable income of ordinary corporate tax entities;
• the standard component of taxable income of companies
(other than life insurance companies) that are RSA providers;
• the amount that exceeds the PDF component of taxable
income of companies that become PDFs during an income
year;
• the ordinary class of taxable income of life insurance
companies;
• the taxable income of public trading trusts; and
• the non-arm's length income of managed investment trusts.
[Schedule 1, items 17 to 20, 23 and 24, subsections 12(10) and 23(2),
paragraphs 23(3)(b), 23(4)(c) and 23A(a) and section 25 of the Rates Act]
1.49 For non-profit companies, the shade-in limit will be reduced to
$817 for the 2024-25 income year. [Schedule 1, item 21, paragraph 23(6)(b) of
the Rates Act]
1.50 Therefore, for the 2024-25 income year, the rates of tax payable
by a non-profit company will be:
• first $416 of taxable income -- nil;
• taxable income between $416 and $817 -- 55 per cent; and
• taxable income above $817 -- 27 per cent.
1.51 For all recognised medium credit unions, the rate of tax on
taxable income exceeding $49,999 will be reduced to 40.5 per cent for the
2024-25 income year. [Schedule 1, item 22, subsection 23(7) of the Rates Act]
1.52 As the 27 per cent corporate tax rate will apply to all corporate
tax entities for the 2024-25 income year, the amendments in Part 6 of
Schedule 1 to this Bill will replace the amendments in Part 9 of
Schedule 1 to the Treasury Laws Amendment (Enterprise Tax Plan)
Act 2017 (the Enterprise Tax Plan Act). [Schedule 4, items 3 to 5]
15
Treasury Laws Amendment (Enterprise Tax Plan No. 2) Bill 2017
Reducing the corporate tax rate to 26 per cent for the 2025-26 income
year
1.53 The amendments in Part 7 of Schedule 1 to this Bill amend the
Rates Act to reduce the corporate tax rate for corporate tax entities to
26 per cent for the 2025-26 income year. The 26 per cent rate will apply
to:
• the taxable income of ordinary corporate tax entities;
• the standard component of taxable income of companies
(other than life insurance companies) that are RSA providers;
• the amount that exceeds the PDF component of taxable
income of companies that become PDFs during an income
year;
• the ordinary class of taxable income of life insurance
companies;
• the taxable income of public trading trusts; and
• the non-arm's length income of managed investment trusts.
[Schedule 1, items 25 to 28, 31 and 32, subsections 12(10) and 23(2),
paragraphs 23(3)(b), 23(4)(c) and 23A(a) and section 25 of the Rates Act]
1.54 For non-profit companies, the shade-in limit will be reduced to
$788 for the 2025-26 income year. [Schedule 1, item 29, paragraph 23(6)(b) of
the Rates Act]
1.55 Therefore, for the 2024-25 income year, the rates of tax payable
by a non-profit company will be:
• first $416 of taxable income -- nil;
• taxable income between $416 and $788 -- 55 per cent; and
• taxable income above $788 -- 26 per cent.
1.56 For all recognised medium credit unions, the rate of tax on
taxable income exceeding $49,999 will be reduced to 39 per cent for the
2025-26 income year. [Schedule 1, item 30, subsection 23(7) of the Rates Act]
1.57 As the 26 per cent corporate tax rate will apply to all corporate
tax entities for the 2025-26 income year, the amendments in Part 7 of
Schedule 1 to this Bill will replace the amendments in Part 10 of
Schedule 1 to the Enterprise Tax Plan Act. [Schedule 4, items 3 to 5]
16
Reducing the corporate tax rate
Reducing the corporate tax rate to 25 per cent for the 2026-27 income
year and for later income years
1.58 The amendments in Part 8 of Schedule 1 to this Bill amend the
Rates Act to reduce the corporate tax rate for corporate tax entities to
25 per cent for the 2026-27 income year and for later income years. The
25 per cent rate will apply to:
• the taxable income of ordinary corporate tax entities;
• the standard component of taxable income of companies
(other than life insurance companies) that are RSA providers;
• the amount that exceeds the PDF component of taxable
income of companies that become PDFs during an income
year;
• the ordinary class of taxable income of life insurance
companies;
• the taxable income of public trading trusts; and
• the non-arm's length income of managed investment trusts.
[Schedule 1, items 33 to 36, 39 and 40, subsections 12(10) and 23(2),
paragraphs 23(3)(b), 23(4)(c) and 23A(a) and section 25 of the Rates Act]
1.59 For non-profit companies, the shade-in limit will be reduced to
$762 for the 2026-27 income year and for later income years. [Schedule 1,
item 37, paragraph 23(6)(b) of the Rates Act]
1.60 Therefore, for the 2026-27 income year and for later income
years, the rates of tax payable by a non-profit company will be:
• first $416 of taxable income -- nil;
• taxable income between $416 and $762 -- 55 per cent; and
• taxable income above $762 -- 25 per cent.
1.61 For all recognised medium credit unions, the rate of tax on
taxable income exceeding $49,999 will be reduced to 37.5 per cent for the
2026-27 income year and for later income years. [Schedule 1, item 38,
subsection 23(7) of the Rates Act]
1.62 As the 25 per cent corporate tax rate will apply to all corporate
tax entities for the 2025-26 income year and for later income years, the
amendments in Part 8 of Schedule 1 to this Bill will replace the
amendments in Part 11 of Schedule 1 to the Enterprise Tax Plan Act.
[Schedule 4, items 3 to 5]
17
Treasury Laws Amendment (Enterprise Tax Plan No. 2) Bill 2017
Consequential amendments
1.63 Schedules 2 to 4 make consequential amendments to the income
tax law to reflect the extension of the reduction in the corporate tax rate to
all corporate tax entities. In particular, these consequential amendments
modify:
• provisions relating to the operation of the imputation system;
• provisions relating to the tax offset available to life insurance
policyholders;
• provisions relating to the operation of the carry forward tax
offset rules;
• examples which illustrate the operation of various provisions
in the income tax law; and
• the definition of standard corporate tax rate for the purposes
of the operation of the diverted profits tax.
Operation of the imputation system
1.64 Under the company imputation system, when an Australian
corporate tax entity distributes profits to its members, the entity has the
option of passing to those members credit for income tax paid by the
entity on the profits. This is done by franking the distribution.
1.65 The amount of franking credits that can be attached to a
distribution cannot exceed the maximum franking credit for the
distribution (section 202-60 of the ITAA 1997). The maximum franking
credit is worked out by reference to the corporate tax gross-up rate,
which is defined in subsection 995-1(1) by reference to the corporate tax
rate for imputation purposes.
1.66 The corporate tax rate for imputation purposes is defined in
subsection 995-1(1) to mean, generally, the entity's corporate tax rate for
the income year (the current income year), worked out on the assumption
that the entity's aggregated turnover for the income year is equal to its
aggregated turnover for the previous income year.
1.67 In the 2023-24 income year, the corporate tax rate will be
27.5 per cent for all corporate tax entities. As a consequence, Schedule 2
to this Bill makes numerous technical amendments to the company
imputation system to ensure that the company imputation system reflects
the single corporate tax rate for all corporate tax entities (including the
18
Reducing the corporate tax rate
removal of the definition of corporate tax rate for imputation purposes).
[Schedule 2, items 1 to 28, sections 36-55, 197-45, 197-60, 197-65, 200-25, 202-55,
202-60, 203-50, 215-20, 705-90, 707-310, 976-1, 976-10, 976-15 and the definitions of
'corporate tax gross-up rate' and 'corporate tax rate' in subsection 995-1(1) of the
ITAA 1997]
Life insurance policyholders
1.68 If an ordinary life insurance policyholder receives the proceeds
of a life insurance policy because the policy matures, section 26AH of the
ITAA 1936 applies to include some or all of the proceeds in the
policyholder's assessable income in some circumstances. The amount that
is included in assessable income depends on how long the policy has been
held, generally as outlined in Table 1.2.
Table 1.2: Life insurance policy proceeds that are assessable
Period policy held by Amount of proceeds included in
policyholder policyholder's assessable income
8 years or less 100 per cent of the investment component
9 years Two-thirds of the investment component
10 years One-third of the investment component
More than 10 years Nil
1.69 If an amount is included in a policyholder's assessable income
under section 26AH of the ITAA 1936, the policyholder may be entitled
to a tax offset under section 160AAB. The tax offset applies to the eligible
section 26AH amount. The amount of the tax offset is calculated by
reference to the statutory percentage, which is based on the rate of tax
paid by the life insurance company on the ordinary component of the
company's taxable income.
1.70 The rate of tax paid by life insurance companies on the ordinary
component of the company's taxable income will be reduced to
27.5 per cent in the 2023-24 income year (when the corporate tax rate is
aligned for all companies). Consistent with other companies, the rate will
then be cut to:
• 27 per cent for the 2024-25 income year;
• 26 per cent for the 2025-26 income year; and
• 25 per cent for the 2026-27 income year and later income
years.
[Schedule 1, items 13, 23, 31 and 39, paragraph 23A(a) of the Rates Act]
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Treasury Laws Amendment (Enterprise Tax Plan No. 2) Bill 2017
1.71 When the rate of tax paid by life insurance companies on the
ordinary component of the company's taxable income has been reduced
on previous occasions, the tax offset available under section 160AAB has
also been reduced, but with a one year delay.
1.72 Therefore, consistent with this practice, the statutory percentage
for working out the tax offset in relation to the eligible section 26AH
amount of an ordinary life insurance policyholder will be the rate
specified in Table 1.3.
Table 1.3: Statutory percentage for life insurance policyholders
Income year Statutory percentage
2002-03 or a later income year 30 per cent
before 2024-25
2024-25 27.5 per cent
2025-26 27 per cent
2026-27 26 per cent
2027-28 and later income years 25 per cent
[Schedule 3, item 1, definition of 'statutory percentage' in subsection 160AAB(1) of the
ITAA 1936]
Operation of the carry forward tax offset rules
1.73 Sections 65-30 and 65-35 of the ITAA 1997 relate to the
operation of the tax offset carry forward rules. Consequential amendments
are made to sections 65-30 and 65-35 to reflect:
• the alignment of the corporate tax rate at 27.5 per cent for all
corporate tax entities in the 2023-24 income year; and
• the subsequent reduction in the corporate tax rate from
27.5 per cent to 25 per cent for the 2026-27 income year and
for later income years.
[Schedule 3, items 6, 7, 13, 14, 20, 21, 27 and 28, subsections 65-30(2) and 65-35(3A) of
the ITAA 1997]
Updating examples in the income tax law
1.74 A number of examples in the income tax law which illustrate the
operation of certain provisions reflect the current headline corporate tax
rate. In particular:
20
Reducing the corporate tax rate
• subsection 36-17(5) of the ITAA 1997 contains an example
of the operation of section 36-17, which specifies how
corporate tax entities can deduct tax losses;
• subsections 36-55(1) and (2) of the ITAA 1997 contain
examples relating to the operation of section 36-55, which
specifies how excess franking offsets can be converted into
corporate tax losses in some circumstances; and
• subsection 115-280(3) of the ITAA 1997 contains an
example of the operation of section 115-280, which allows
deductions for certain shareholders who receive dividends
from listed investment companies in some circumstances.
1.75 Consequential amendments will update the examples in
subsection 36-17(5), 36-55(1), 36-55(2) and 115-280(3) to reflect:
• the alignment of the corporate tax rate at 27.5 per cent for all
corporate tax entities in the 2023-24 income year; and
• the subsequent reduction in the corporate tax rate from
27.5 per cent to 25 per cent for the 2026-27 income year and
for later income years.
[Schedule 3, items 2 to 5, 8 to 12, 15 to 19, 22 to 26 and 29, examples in
subsections 36-17(5), 36-55(1), 36-55(2) and 115-280(3) of the ITAA 1997]
Operation of the diverted profits tax
1.76 The Treasury Laws Amendment (Combating Multinational Tax
Avoidance) Act 2017 (the Combating Multinational Tax Avoidance Act)
amended the income tax law to introduce the diverted profits tax. Item 7
of Schedule 1 to the Act amends the definition of standard corporate tax
rate in subsection 177A(1) of the ITAA 1936 to reflect the alignment of
the corporate tax rate at 27.5 per cent for all corporate tax entities in the
2023-24 income year. A note to that definition specifies that the item
commences on 1 July 2023, at the same time as Part 2 of Schedule 4 to the
Enterprise Tax Plan Act.
1.77 As this Bill will give effect to the alignment of the corporate tax
rate at 27.5 per cent for all corporate tax entities in the 2023-24 income
year, a technical amendment is made to the Combating Multinational Tax
Avoidance Act so that the note to the definition of standard corporate tax
rate specifies that item 7 of Schedule 1 to that Act will commence when
Part 1 of Schedule 2 of this Bill commences. [Schedule 4, items 1 and 2,
definition of 'standard corporate tax rate in subsection 177A(1) of the ITAA 1936]
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Treasury Laws Amendment (Enterprise Tax Plan No. 2) Bill 2017
Application and transitional provisions
Extension of the 27.5 per cent corporate tax rate to all corporate tax
entities
1.78 Parts 1 to 4 of Schedule 1 to this Bill amend the Rates Act to
extend the lower 27.5 per cent corporate tax rate to all corporate tax
entities by the 2023-24 income year by raising the aggregated turnover
threshold which applies to determine whether a corporate tax entity is a
base rate entity that qualifies for the lower 27.5 per cent corporate tax rate
annually.
1.79 These amendments, and associated consequential amendments,
commence and apply in four stages, as outlined in Table 1.4.
Table 1.4: Commencement and application of increases in aggregated
turnover to qualify for the 27.5 per cent corporate tax rate
The increase in commences on: and applies to:
aggregated turnover
to this amount:
$100 million 1 July 2019 the 2019-20 income year and
[Subsection 2(1), later income years.
table item 2] [Schedule 1, subitem 41(1)]
$250 million 1 July 2020 the 2020-21 income year and
[Subsection 2(1), later income years.
table item 3] [Schedule 1, subitem 41(2)]
$500 million 1 July 2021 the 2021-22 income year and
[Subsection 2(1), later income years.
table item 4] [Schedule 1, subitem 41(3)]
$1 billion 1 July 2022 the 2022-23 income year and
[Subsection 2(1), later income years.
table item 5] [Schedule 1, subitem 41(4)]
1.80 Part 5 of Schedule 1 to this Bill amends the Rates Act to extend
the 27.5 per cent corporate tax rate to all corporate tax entities. These
amendments, and associated consequential amendments in Schedule 2,
apply from the 2023-24 income year. [Schedule 1, subitem 41(5); Schedule 2,
item 29]
1.81 The amendments in Part 5 of Schedule 1, and associated
consequential amendments in Schedules 2 and 3, commence on
1 July 2023. [Schedule 1, subsection 2(1), table items 6, 11 and 13]
1.82 The amendments to the Combating Multinational Tax
Avoidance Act in Schedule 4 to this Bill, which modify the diverted
profits tax to reflect the alignment of the corporate tax rate at 27.5 per cent
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Reducing the corporate tax rate
for all corporate tax entities in the 2023-24 income year, will commence
on 4 April 2017 -- that is, immediately after the commencement of the
Combating Multinational Tax Avoidance Act. [Schedule 1, subsection 2(1),
table item 17]
Reduction in the corporate tax rate to 25 per cent by the 2026-27 income
year
1.83 Parts 6 to 8 of Schedule 1 amend the Rates Act to reduce the
corporate tax rate for all corporate tax entities in stages to 25 per cent by
the 2026-27 income year.
1.84 These amendments, and associated consequential amendments,
commence and apply in three stages, as outlined in Table 1.5.
Table 1.5: Commencement and application of amendments to reduce
the corporate tax rate to 25 per cent in stages
The reduction in the commences on: and applies to:
corporate tax rate
to:
27 per cent 1 July 2024 the 2024-25 income year and
[Subsection 2(1), later income years.
table items 7 and 14] [Schedule 1, subitem 41(6)]
26 per cent 1 July 2025 the 2025-26 income year and
[Subsection 2(1), later income years.
table items 8 and 15] [Schedule 1, subitem 41(7)]
25 per cent 1 July 2026 the 2026-27 income year and
[Subsection 2(1), later income years.
table items 9 and 16] [Schedule 1, subitem 41(8)]
STATEMENT OF COMPATIBILITY WITH HUMAN RIGHTS
Prepared in accordance with Part 3 of the Human Rights
(Parliamentary Scrutiny) Act 2011
Reduction in the corporate tax rate
1.85 This Bill is compatible with the human rights and freedoms
recognised or declared in the international instruments listed in section 3
of the Human Rights (Parliamentary Scrutiny) Act 2011.
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Treasury Laws Amendment (Enterprise Tax Plan No. 2) Bill 2017
Overview
1.86 Schedule 1 to this Bill amends the Rates Act to progressively
extend the lower 27.5 per cent corporate tax rate to all corporate tax
entities by the 2023-24 income year. The corporate tax rate will then be
cut, for all corporate tax entities, to:
• for the 2024-25 income year -- 27 per cent;
• for the 2025-26 income year -- 26 per cent; and
• for the 2026-27 income year and later income years --
25 per cent.
1.87 Schedules 2 to 4 make consequential amendments to the income
tax law to reflect the extension of the reduction in the corporate tax rate to
all corporate tax entities.
Human rights implications
1.88 This Bill does not engage any of the applicable rights or
freedoms.
Conclusion
1.89 This Bill is compatible with human rights as it does not raise any
human rights issues.
24
Index
Schedule 1: Reducing the corporate tax rate
Bill reference Paragraph number
Items 1 to 4, paragraph 23AA(b) of the Rates Act Table 1.1
Items 5 and 12 1.45
Item 6, subsection 12(10) of the Rates Act 1.47
Items 7 to 9, 13 and 14, subsection 23(2), paragraphs 23(3)(b), 1.41
23(4)(c) and 23A(a) and section 25 of the Rates Act
Item 10, paragraph 23(6)(b) of the Rates Act 1.42
Item 11, subsection 23(7) of the Rates Act 1.44
Items 13, 23, 31 and 39, paragraph 23A(a) of the Rates Act 1.70
Items 15 and 16, paragraphs 28(a) and 28A(a) of the Rates Act 1.46
Items 17 to 20, 23 and 24, subsections 12(10) and 23(2), 1.48
paragraphs 23(3)(b), 23(4)(c) and 23A(a) and section 25 of the Rates
Act
Item 21, paragraph 23(6)(b) of the Rates Act 1.49
Item 22, subsection 23(7) of the Rates Act 1.51
Items 25 to 28, 31 and 32, subsections 12(10) and 23(2), 1.53
paragraphs 23(3)(b), 23(4)(c) and 23A(a) and section 25 of the Rates
Act
Item 29, paragraph 23(6)(b) of the Rates Act 1.54
Item 30, subsection 23(7) of the Rates Act 1.56
Items 33 to 36, 39 and 40, subsections 12(10) and 23(2), 1.58
paragraphs 23(3)(b), 23(4)(c) and 23A(a) and section 25 of the Rates
Act
Item 37, paragraph 23(6)(b) of the Rates Act 1.59
Item 38, subsection 23(7) of the Rates Act 1.61
Subsection 2(1), table items 6, 11 and 13 1.81
Subsection 2(1), table item 17 1.82
Subitems 41(1), 41(2), 41(3) and 41(4) Table 1.4
Subitem 41(5); Schedule 2, item 29 1.80
Subitem 41(6), 41(7) and 41(8) Table 1.5
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Treasury Laws Amendment (Enterprise Tax Plan No. 2) Bill 2017
Schedule 2: Main consequential amendments relating to
imputation
Bill reference Paragraph number
Items 1 to 28, sections 36-55, 197-45, 197-60, 197-65, 200-25, 1.67
202-55, 202-60, 203-50, 215-20, 705-90, 707-310, 976-1, 976-10,
976-15 and the definitions of 'corporate tax gross-up rate' and
'corporate tax rate' in subsection 995-1(1) of the ITAA 1997
Schedule 3: Other consequential amendments
Bill reference Paragraph number
Item 1, definition of 'statutory percentage' in subsection 160AAB(1) 27.5
of the ITAA 1936
Items 2 to 5, 8 to 12, 15 to 19, 22 to 26 and 29, examples in 1.75
subsections 36-17(5), 36-55(1), 36-55(2) and 115-280(3) of the
ITAA 1997
Items 6, 7, 13, 14, 20, 21, 27 and 28, subsections 65-30(2) 1.73
and 65-35(3A) of the ITAA 1997
Schedule 4: Other amendments
Bill reference Paragraph number
Items 1 and 2, definition of 'standard corporate tax rate in 1.77
subsection 177A(1) of the ITAA 1936
Items 3 to 5 1.52, 1.57, 1.62
26